There is no question in my mind that the United States is an oligarchy. Every society has some sort of oligarchy. Sometimes it is called an old boy network. Sometimes it is called a good old boy network. There is always some kind of an elite which is interconnected in some way -- by family connections, money, educational institutions, secret societies, and so forth.
The modern world is, for the first time, governed by what is essentially a single oligarchy. The annual World Economic Forum meeting in Davos, Switzerland is the most visible manifestation of it. This oligarchy is, as David Rothkopf has said, a superclass.
There is something fundamentally different about this oligarchy, which distinguishes it from all previous oligarchies. It is this: it is founded on the gigantic amounts of money generated by the free market. In all previous oligarchies, the foundation of power has been politics. Today, politics is a support mechanism to the existing allocation of wealth. It is most obvious in the field of banking, because of the existence of central banks. The ability of central banks, when coupled with the commercial banking system, to create money makes this monopoly unique. It possesses, literally, a license to print money.
WHO'S IN CHARGE HERE?
We now come to the fundamental question which has divided economists from social theorists for over two centuries. Is the free market more dominant than politics, or is politics more dominant than the free market?
The Nazis and the fascists believed that the political order is more dominant than the economic order. So did the Marxists. Most free market economists believe the opposite. They believe that market forces, which are associated with individual productivity, private capital investment, a widespread distribution of ownership, the profit-and-loss system, double-entry bookkeeping, and the creativity of individual minds, ultimately triumphs over politics.
I suppose the clearest statement of the free market position is found in F. A. Hayek's 1945 essay, "The Use of Knowledge in Society." There, he argued that knowledge is essentially decentralized. It is coordinated by the free market social order. No institution of civil government has anything like a comparable quantity or quality of knowledge. So, the free market social order has an enormous advantage in the mobilization of this crucial resource: practical knowledge. It can access accurate knowledge more inexpensively than any government committee can. Inherently, the decentralized social order is more productive than the centralized political order.
I am certainly on the side of Hayek. Austrian School economists have no doubt that the political order can interfere with the information delivery system. Hayek called the free market system a discovery process. It is possible for civil governments, and especially central banks, to interfere with price signals to such an extent that they no longer convey accurate information. But the result of this is always going to be reduced productivity, and in the case of central banks, another bust to match the previous boom. In other words, there is always a price to pay for intervention into the market, and the more intervention there is, the greater the price.
THE PRESENT OLIGARCHY
Here is why the present oligarchical system is unique. First, it is international. It is international because it is financial. It is based on international market order, even though there is no common political unit that can impose negative sanctions on deviance. The free market imposes sanctions on deviance, with deviation being defined as activities that do not satisfy customer demand.
Second, this is why the present oligarchy cannot impose its will on the broad masses of humanity. It can impose its will on certain representative institutions within the political order, and to a much lesser extent, on the economic order. The primary means of imposing political sanctions on the economic order is by means of the central bank. Money is the common instrument of voluntary exchange in a modern economy. Therefore, control over money is the most important single aspect of economic control in the modern economy. But, as we know, central banks are agents of the largest commercial banks. It is not clear that political control is dominant most of the time. The managers of the largest banks need not fear the chairmen of government committees.
This means that the present oligarchy is restrained in ways that previous oligarchies were not. The existing oligarchy is constrained by an international division of labor. The oligarchy's members cannot control the international division of labor through politics, because there is no central sovereign agency of civil government comparable to the international division of labor.
The profit-and-loss system is the means of sanctioning producers. The ones that meet customer demand make profits; the ones that do not meet customer demand produce losses. It is an impersonal system. It is not directed by a government agency or a group of committee members. The profit-and-loss system is universal today. It spreads throughout the entire international economy. There is nothing comparable that the prevailing oligarchy could implement to match the system of sanctions that is provided by modern accounting, by means of the profit-and-loss system.
The modern world is probably more hierarchical in the distribution of wealth than any previous oligarchy. Rothkopf, estimates that the 6,000 people who are part of the superclass control as much money and capital as the bottom 3 billion people on earth. Yet they cannot control this capital irrespective of the market. They benefit as owners of the capital, and they will never go hungry. But they also do not have top-down control over the allocation of wealth. Customers determine the allocation of wealth, and only national political administrations and national central banks can tamper with this allocation very much. Furthermore, the elite usually can impose sanctions only within the geographical and judicial confines of a single nation. But the free market today is more international than any economic system in the past, and it is extending its rule into almost every nook and cranny of the world. The more this process continues, the less that any oligarchy can legitimately hope to be able to direct the innovation, restructuring, and profitability of any particular sector of the economy.
There is probably more inequality of wealth today than ever in history, but this does not work to the disadvantage of those who are not possessors of great wealth. It is the very fact of the decentralization of ownership, as well as the decentralization of creativity, that forces the oligarchs to meet the demand of customers. They are incredibly rich, but they have made their customers incredibly rich. The customers are wealthy to a degree that would not have been conceivable a century ago. This system of ownership and market sanctions is now being extended around the world. I do not think it can be reversed.
So, the oligarchs are able to gain certain competitive advantages over the broad mass of society, especially through the rule of central banking. But they cannot escape the ultimate system of economic sanctions: double-entry bookkeeping.
CONCLUSION
This is why I am not particularly concerned about the inequality of wealth distribution. I don't really care who is rich and who isn't. I care only about the rules by which those who are rich have become rich and maintain their wealth. To the extent that their wealth is dependent on the broad masses of customers throughout the world, I don't care what they do with their wealth. They cannot possibly spend it all. They cannot spend it all on wine, women, and song. They have to reinvest it, 24x7, and they have to reinvest it in terms of investments that are governed by double-entry bookkeeping. The elite cannot escape the authority of the customers in any system even closely resembling a free market social and economic order.
The fundamental fact is this: there is no international agency of political sanctions. In stark contrast, there is an international agency of economic sanctions: the profit-and-loss system. Through national politics, the elite can feather its collective nest in the pursuit of wealth in one nation. But wealth is international. The free market is international. Knowledge is international. Wealth seems concentrated at the top, but the basis of this wealth is decentralized customer demand. The owners of this wealth have no choice but to administer it as economic agents of those who have the most marketable commodity: money. Money talks. Ownership in a free market is inescapably a social function. It is governed by this rule: "High bid wins."
Truly great wealth today is possible in only two ways: (1) meeting the demands of consumers through market competition, and (2) running a family-based feudal social order in an oil-exporting state that a century ago was poverty-stricken. The transition from camels to oil was based on Western technology and Western customer demand. Nobody escapes the authority of the consumers in a market order.
As long as consumers are in charge of the decision-making process of what they buy, members of the elite will come and go, but they will maintain their wealth and their influence only by meeting the demands of consumers. This is why I do not worry a great deal about what the elites do. Sometimes they are annoying, but ultimately, he who pays the piper calls the tune. Customers call the tunes -- lots and lots of tunes.
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